[Senate Hearing 106-180] [From the U.S. Government Publishing Office] S. Hrg. 106-180 S. 59--REGULATORY RIGHT-TO-KNOW ACT OF 1999 AND CONGRESSIONAL OFFICE OF REGULATORY ANALYSIS LEGISLATION ======================================================================= HEARING BEFORE THE COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE ONE HUNDRED SIXTH CONGRESS FIRST SESSION on S. 59 TO PROVIDE GOVERNMENTWIDE ACCOUNTING OF REGULATORY COSTS AND BENEFITS, AND FOR OTHER PURPOSES __________ APRIL 22, 1999 __________ Printed for the use of the Committee on Governmental Affairs U.S. GOVERNMENT PRINTING OFFICE 57-553 CC WASHINGTON : 1999 _______________________________________________________________________ For sale by the Superintendent of Documents, Congressional Sales Office U.S. Government Printing Office, Washington, DC 20402 COMMITTEE ON GOVERNMENTAL AFFAIRS FRED THOMPSON, Tennessee, Chairman WILLIAM V. ROTH, Jr., Delaware JOSEPH I. LIEBERMAN, Connecticut TED STEVENS, Alaska CARL LEVIN, Michigan SUSAN M. COLLINS, Maine DANIEL K. AKAKA, Hawaii GEORGE V. VOINOVICH, Ohio RICHARD J. DURBIN, Illinois PETE V. DOMENICI, New Mexico ROBERT G. TORRICELLI, New Jersey THAD COCHRAN, Mississippi MAX CLELAND, Georgia ARLEN SPECTER, Pennsylvania JOHN EDWARDS, North Carolina JUDD GREGG, New Hampshire Hannah S. Sistare, Staff Director and Counsel Paul R. Noe, Senior Counsel Joyce A. Rechtschaffen, Minority Staff Director and Counsel Lawrence B. Novey, Minority Counsel Darla D. Cassell, Administrative Clerk C O N T E N T S ------ Opening statement: Page Senator Thompson............................................. 1 Prepared statement: Senator Voinovich............................................ 35 WITNESSES Thursday, April 22, 1999 Donald R. Arbuckle, Acting Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget........ 3 Hon. Steve Saland, State Senator, New York, on behalf of the National Conference of State Legislatures...................... 4 Arthur J. Dyer, President, Metal Products Company, on behalf of the National Association of Manufacturers...................... 14 Robert E. Litan, Ph.D., Director, Economic Studies at the Brookings Institution and Co-Director at the AEI-Brookings Joint Center for Regulatory Studies............................ 16 Murray Weidenbaum, Ph.D., Chairman, Center for the Study of American Business, Washington University....................... 18 Sidney A. Shapiro, Visiting Scholar, School of Policy and Environmental Affairs, Indiana University...................... 20 Gary D. Bass, Ph.D., Executive Director, OMB Watch............... 21 Alphabetical List of Witnesses Arbuckle, Donald R.: Testimony.................................................... 3 Prepared statement........................................... 55 Bass, Gary D.: Testimony.................................................... 2 Prepared statement........................................... 130 Dyer, Arthur J.: Testimony.................................................... 14 Prepared statement........................................... 82 Litan, Robert E.: Testimony.................................................... 16 Joint prepared statement by Robert W. Hahn and Robert E. Litan...................................................... 91 Saland, Hon. Steve: Testimony.................................................... 4 Prepared statement........................................... 63 Shapiro, Sidney A.: Testimony.................................................... 20 Prepared statement........................................... 114 Weidenbaum, Murray: Testimony.................................................... 18 Prepared statement........................................... 108 Appendix Copy of S. 59.................................................... 36 Copy of S. 1675.................................................. 42 Letter from the National Governors' Association, National Conference of State Legislatures, Council of State Governments, The U.S. Conference of Mayors, National League of Cities, National Association of Counties, and International City/County Management Association, dated March 10, 1999................... 53 GAO report entitled ``Regulatory Accounting, Analysis of OMB's Reports on the Costs and Benefits of Federal Regulation,'' GAO/ GGD-99-59, dated April 1999.................................... 142 The Heritage Foundation, Backgrounder article, entitled ``Regulatory Right to Know: Tracking the Costs and Benefits of Federal Regulation,'' dated April 20, 1999, by Angela Antonelli 219 CRS Memorandum, dated April 15, 1999, from Morton Rosenberg, Specialist in American Public Law, American Law Division....... 232 ``Improving Regulatory Accountability,'' by Robert W. Hahn and Robert E. Litan, American Enterprise Institute for Public Policy Research and The Brookings Institution, 1997............ 240 ``Modernizing Government Regulation: The Need For Action,'' A Policy Statement by the Research and Policy Committee of the Committee for Economic Development, CED........................ 260 S. 59--REGULATORY RIGHT-TO-KNOW ACT OF 1999 AND CONGRESSIONAL OFFICE OF REGULATORY ANALYSIS LEGISLATION ---------- THURSDAY, APRIL 22, 1999 U.S. Senate, Committee on Governmental Affairs, Washington, DC. The Committee met, pursuant to notice, at 10:51 a.m., in room SD-342, Dirksen Senate Office Building, Hon. Fred Thompson, Chairman of the Committee, presiding. Present: Senator Thompson. OPENING STATEMENT OF CHAIRMAN THOMPSON Chairman Thompson. Let us get started. I appreciate your patience this morning. Last night, the leadership asked some of us to come together this morning for a little while, so we are running a little late this morning and I appreciate our first two gentlemen here agreeing to consolidate our panel. Maybe it will save a little bit of time. We are considering two bills today to increase the accountability and transparency of the Federal regulatory process, the Regulatory Right-To-Know Act and a proposal for a Congressional Office of Regulatory Analysis Act. On January 19, I introduced the Regulatory Right-To-Know Act, S. 59, with Senator John Breaux, Senator Ted Stevens, and Senator Trent Lott. I am pleased that Senators Voinovich, Landrieu, Bond, Robb, and Hutchinson have joined us as cosponsors. S. 59 would require the Office of Management and Budget to submit to Congress an annual report on the costs and benefits of regulatory programs. Its purpose is to, first, promote the public's right to know the costs and benefits of regulation; second, increase the government's accountability; and third, to improve the quality of Federal regulatory programs and rules. S. 59 continues the efforts of my predecessors on this Committee. Regulatory accounting was part of the Roth-Glenn regulatory reform bill unanimously reported by the Committee in 1995, when Senator Roth was our Chairman. In 1996, when Ted Stevens became our Chairman, his 1-year regulatory accounting amendment on the Omnibus Appropriations Act passed unanimously. Senator Roth, as well as Senators Glenn and Levin, supported the Stevens amendment. I supported Senator Stevens' efforts when it was enacted again in 1997. Last year, I sponsored a similar measure, which was cosponsored by Senators Lott, Breaux, Robb, and Shelby. It passed unanimously and OMB will submit its third regulatory accounting report in January of 2000. There also is a broad bipartisan coalition in the House that supports regulatory accounting, and in March, they introduced a more detailed regulatory accounting bill with 17 Democrats and 14 Republican cosponsors. S. 59 will continue the requirement that OMB report to Congress on the costs and benefits of regulatory programs. This legislation also adds the previous initiatives in several different respects. I believe the public has the right to know the benefits and costs of regulatory programs. By any measure, regulation is a major part of the government's business, costing hundreds of billions of dollars each year. Sensible regulatory programs also provide important benefits to the public and ones that they expect and deserve. The government has an obligation to think carefully about regulatory priorities, but we are just breaking ground now on how to do that. I believe that giving the public the opportunity to look over the government's shoulder, in effect, will help improve the quality as well as accountability of regulatory programs. The second issue the Committee will consider today is a proposal for a Congressional Office of Regulatory Analysis, known as CORA. Last Congress, Senators Shelby and Bond introduced S. 1675, to establish such a Congressional office. I want to work with them to refine this concept, and testimony today on S. 1675 can help us do that. I think the CORA bill is about accountability. Congress has a responsibility to ensure that the laws it passes are implemented effectively, efficiently, and fairly by the Executive Branch. To ensure that, we need accurate and reliable information. S. 1675 would create a Congressional Office of Regulatory Analysis to provide Congress an independent analysis of the costs and benefits of agency rules. It would help us understand the logic of agency regulatory analysis and regulatory outcome. It would help us to understand whether agencies are issuing regulations that follow the intent of the law. S. 1675 also contains a provision for CORA to report on the costs and benefits of Federal regulations so that in that respect, S. 1675 overlaps with S. 59. S. 1675 also would transfer to CORA certain functions now assigned to the General Accounting Office and the Congressional Budget Office under the Congressional Review Act of 1995. This includes the requirement that GAO produce a checklist for major rules showing whether the agency complied with current procedural requirements, such as Executive Order 12866, the Regulatory Flexibility Act, and the Unfunded Mandates Act. We have an excellent group of witnesses here today. We will hear from the administration, a State Senator, a small business owner, scholars, and a public interest group member and I look forward to hearing their testimony. The full text of everyone's prepared statements that you might have will be entered into the record, so I would ask that you summarize your testimony, if you would. I would like to recognize the first panel of witnesses. We are pleased to have with us today Don Arbuckle, the Acting Administrator of the Office of Information and Regulatory Affairs of the Office of Management and Budget. He will be followed by the Hon. Steve Saland, a State Senator from New York and is here representing the National Conference of State Legislatures. Mr. Arbuckle, would you like to begin, please. TESTIMONY OF DONALD R. ARBUCKLE,\1\ ACTING ADMINISTRATOR, OFFICE OF INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND BUDGET Mr. Arbuckle. I would be happy to. Good morning, Mr. Chairman. It is a pleasure to be here. Thank you very much for permitting me to come up and testify on this legislation. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Arbuckle appears in the Appendix on page 55. --------------------------------------------------------------------------- You invited us to testify on the Regulatory Right-To-Know Act of 1999, S. 59, and the Congressional Office of Regulatory Analysis Act, which as you point out was S. 1675 in the previous Congress. In addition, given recent Subcommittee action in the House on H.R. 1074, the counterpart to your bill, I hope that the Committee will consider it appropriate for me to at least mention this bill, as well. Both the Committee and the administration have a common interest in making sure that government regulation is thoughtful and carefully analyzed before it is promulgated. At OIRA, we take this mission seriously. Every day, we are in discussion with agencies throughout the government probing the justifications and analyses behind their proposals. For each of the past 2 years, we have summarized for the Congress and the public what is known about the costs and benefits of government regulation. We have done so under an appropriations rider that the administration supported providing for such an annual report. We believe that these reports have helped both to improve the quality of regulatory analysis and to make clear that we still have much more to do. S. 59 would make permanent what Congress has passed as riders each of the past 3 years. Unfortunately, it would do so in ways that we think could delay or impede the process of improving regulation rather than advancing it. Make no mistake, we strongly support the general purposes of this legislation. It is our daily work. But with the Committee's permission, I would like to summarize very briefly why we hope the Committee, if it chooses to put this requirement into permanent legislation, will do so in a way that follows more closely the model Congress has already adopted in the riders. First, both S. 59 and H.R. 1074, by requiring extensive procedures and detailed cost-benefit analyses of each government program and even program element, would, we believe, divert attention and resources from our current focus, which is making certain that agency decisions make sense. Some of the requirements of these bills are beyond the abilities and resources of the agencies who perform these analyses and of OMB. Some are beyond the current consensus in academia. Second, the requirement of the bills that OIRA and OMB make policy recommendations concerning elimination and reform of government programs appears not to recognize or at least to minimize the fact that such proposals are already developed by the President's existing policy making procedures. The administration has a long record of suggesting changes in regulatory policies and procedures when appropriate, for example, in the Safe Drinking Water Act amendments, Food and Drug Administration modernization, and Food Quality Protection Act. All of these required extensive work throughout the Executive Branch and throughout the Congress. We are concerned about the creation of a separate and additional policy process as part of this report. In general, then, we are concerned that the new requirements of S. 59 and/or H.R. 1074 reflect a belief that there is more information available than is the case, that this information can be produced by agencies or by OMB without significant diversion of resources, and that other responsibilities for OIRA can still be met. We are concerned that the new provisions will create unreasonable expectations which, in turn, will hinder rather than help resolve the many methodological and data collection difficulties inherent in this task. Before completing my testimony, let me comment briefly on the Congressional Office of Regulatory Analysis Act, S. 1675. As is the tradition, the administration defers to Congress on matters of internal organization of the Legislative Branch. However, we believe it is important to clarify that we believe no Congressional office should be involved in the Executive Branch's development of new regulations prior to their formal publication. Legislation which would directly involve Congress during the development of regulations would undermine the candid exchange of views within the Executive Branch and could jeopardize the careful rulemaking process established through the Administrative Procedure Act over the past 50 years. Congress has established a workable regulatory review process in which it oversees Executive Branch regulatory decisions after those decisions are made in accordance with established statutory administrative procedures and we believe that this process should be maintained. That concludes my testimony, Mr. Chairman. Thank you, and I look forward to the opportunity to address any questions you may have. Chairman Thompson. Thank you very much. Senator Saland. TESTIMONY OF HON. STEVE SALAND,\1\ STATE SENATOR, NEW YORK, ON BEHALF OF THE NATIONAL CONFERENCE OF STATE LEGISLATURES Mr. Saland. Thank you, Mr. Chairman. Mr. Chairman, I am Senator Steve Saland, and as you noted earlier, a member of the New York State Senate, where I chair the Senate Children and Families Committee. I appear before you today on behalf of the National Conference of State Legislatures and the other six organizations of State and local elected officials that comprise the Big Seven. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Saland appears in the Appendix on page 63. --------------------------------------------------------------------------- NCSL and the other Big Seven organizations support S. 59, the Regulatory Right-To-Know Act of 1999. You have my testimony in support of the legislation before you. I will summarize some of the key points raised in the testimony and address your request of commenting on related legislation that would establish a Congressional Office of Regulatory Affairs. For several years, NCSL has raised concerns about developments in the relations between the Federal and State Governments. A decade ago, State legislators were alarmed about unfunded Federal mandates. We worked hard with Members of this Committee and others in Congress to pass the Unfunded Mandates Reform Act. Our more recent concerns focus on preemption of State and local authority by the Federal Government and on the Federal regulatory process. We believe the combination of unfunded mandates, preemption, and an archaic regulatory process curtail innovation and responsiveness of State and local officials. NCSL views the Regulatory Right-To-Know Act as part of a package of reforms that, when passed, will largely alleviate the problems we have identified with preemption and the regulatory process. This Congress held a hearing yesterday on the Regulatory Improvement Act, S. 746, that represents yet another part of this package. We look forward to working with you on the Federal Financial Assistance Management Act and ultimately on the bill that would help constrain the propensity of Congress to preempt State and local prerogatives. The Regulatory Right-To-Know Act contains four important elements. The annual accounting statement will offer the power of information to State, local, and Federal officials concerned with the impact of agency decisions on State and local governments. It will give Congress an indispensable oversight tool to determine whether agencies have exceeded their statutory authority when promulgating rules. The cost-benefit analyses required by S. 59 will make agency officials more accountable for the programs they are implementing. They give the public a much better sense of how much funding it takes to provide particular benefits. The third element of S. 59 calls for the recommendations regarding inefficient or ineffective programs or program rules. This, we believe, will streamline the regulatory process and ease the cause of considerable tension and frustration for State and local officials. Finally, we are supportive of the bill's notice and comment provision. This element makes the accounting report a dynamic document, giving State and local officials a chance to highlight their most pressing concerns about proposed Federal actions. The National Conference of State Legislatures also believes that S. 59 could be strengthened by adding the objectives of S. 1675 from the 105th Congress. That legislation would create a Congressional Office of Regulatory Affairs. This would fall somewhat into line with the practices that State legislatures have adopted in order to enhance regulatory oversight. The chart attached to my testimony gives you a general summary of some of the actions States have taken to enhance regulatory oversight. I believe you will see that we practice what we preach. Over the past 20 years, legislatures have significantly broadened their program evaluation, rule review, program accountability, and fiscal analysis activities. Cost- benefit analyses and risk assessments are becoming more frequently used devices for program implementation. There are a variety of approaches to be found among States. They range from advisory committees, such as in New York, to committees with veto power, as in Ohio, or both approval and veto power, as in Connecticut, or suspension authority, as is found in Illinois. Each step we take together on the federalism front, whether the Unfunded Mandates Reform Act, curtailing preemption, or making the regulatory process more accountable, is a step toward strengthening the intergovernmental partnership and its responsiveness and credibility. It is not an abstract exercise. Rather, it is a critical element in assuring the public's confidence in our Federal system so finely crafted by our Founding Fathers. I look forward to working with you in passing S. 59 and the other components of our federalism agenda. Thank you for this opportunity to appear before you today, and I will be glad to respond to your questions, Mr. Chairman. Chairman Thompson. Thank you very much. I appreciate your being with us here today and giving us additional insight as to how it works at the State level. Senator, I would ask you first, how does creating a Regulatory Right-To-Know Act and a Congressional Office of Regulatory Analysis fit with what State legislatures are already doing in the world of regulatory oversight? You mentioned that briefly, some of them. Could you elaborate on that a little bit and give us a little bit better feel as to how? It sounds like the States may be a little bit advanced of where we are in some respects. Mr. Saland. Certainly. Thank you, Mr. Chairman. As you have heard, I am sure, the States, according to one of our great Supreme Court justices, often are viewed as the laboratories, and certainly your home State is probably the granddaddy of regulatory reform and many of the States are indebted to the particular reforms that Tennessee has led the way on. Let me talk generally about the spectrum, if you will, Mr. Chairman. We in New York, as I mentioned in my testimony, are more in the nature of an advisory system whereby we have a bipartisan regulatory commission. We call it an ARRC, our Administrative Regulations Review Commission. They review regulations and make recommendations. They also are responsible for really initiating reform legislation with respect to regulations. The system works pretty well. We have found that, in speaking with the Commission staff, they are satisfied that the administration is generally responsive to those things that they highlight. There are, however, other States that certainly are far more proactive, States such as I mentioned in my testimony, like the State of Connecticut. In Connecticut, they have the right to both, in effect, approve or disapprove of regulations. There are certain time periods within which they must act. The State of Illinois basically has the ability to suspend a rule for 180 days, within which time there must be review of that rule and, in effect, the tendering of a replacement or an effort to deal with the issues raised by the legislature. Chairman Thompson. At what stage do they come in? At what stage do they make that review, at what stage in the regulatory process? Mr. Saland. In some instances, they address existing rules, and in some instances, it is the ability to be part of the rule preparation process. One of the things that has occurred in many of our States is that we have seen, certainly over the course of the past 2 decades, a much more proactive response, both at the executive level and at the legislative level. We have found, and here, if I may cite my experience in New York, where our Governor, Governor Pataki, very proactively when he took office handed the reins over to the person who is currently his budget director, Bob King, a former State legislator. He and his staff went about very actively reviewing existing regulations and weeding out where, in fact, there was duplication, where, in fact, there was a cost-benefit relationship that bore no relationship to reality. The long and the short of it, Mr. Chairman, is that in the entire spectrum, we have some 41 out of 50 States that engage in regulatory oversight. In that entire spectrum, there is little or nothing that you could not find by way of example of paths to travel down as you explore the interaction of legislative activity and the rulemaking process. I certainly think I could speak for the NCSL in saying, to the extent that you would like us to do so, we would be more than happy to share with you our experiences. I have attached to my testimony, in effect, a compendium of what those 41 States do, and also, although it is not attached to my testimony, the five States which I referred to by way of example, we can attach for your edification the particulars of how those States handle regulatory oversight. Chairman Thompson. I appreciate that very much. I sure would. Mr. Arbuckle, are you familiar with what is going on in the States generally in this regard? Mr. Arbuckle. Well, we are familiar with a lot of the efforts. I cannot say that I have the depth of knowledge that Senator Saland has about this. We have tried very hard to reach out to States to make sure that there is this coordination that he talked about. As you can imagine, it is a huge endeavor. There are a lot of issues that have to be worked and that have different effects on different States, but we are definitely trying to do that and coordinate. Chairman Thompson. I think this is a classic example of the laboratories that you are talking about, where, clearly, we are moving into somewhat unchartered territory here and no one has the precise answer as to, for example, when the legislative body should be involved in the process. I would certainly be interested in knowing what the experimentation has been at the State level. Mr. Arbuckle, I understand that is one of your primary concerns with the CORA legislation as it has developed. I think what has happened is that as the legislation has developed, the legislative body has become more involved earlier in the process, at perhaps the notice of proposed rulemaking stage. You are suggesting that that is too much, too early, and that we should wait until when? Mr. Arbuckle. Let me clarify that a little bit, Mr. Chairman. There are a lot of stages in a rulemaking process that takes place sometimes over a long period of time. The two most formal stages established by the Administrative Procedure Act are the publication of a notice of proposed rulemaking for public comment and then, following that, an analysis of the comments, and the publication of a final rule. I think it would be perfectly appropriate for the Congress to be concerned and involved and interested in rulemaking as it develops at those two stages. The concerns that we have involved our ability to carry out the intra-Executive Branch process of deciding and analyzing what the regulation should do, without at that point having an intersection with the Congressional interests that have provided the statutory duties that we are acting off of. Chairman Thompson. It sounds like you are saying two different things, or saying both ways. On the one hand, that it would be appropriate for there to be some Congressional involvement early on in the process, perhaps at the proposed rulemaking stage, but on the other hand, you would really rather not have them there. If there is a role at that stage, what would be, in your view, an appropriate role where it would not interfere? And you might, if you want to, get into a little bit of the detail of the nuts and bolts as to exactly how this works, perhaps, and some practical difficulties you see with it. But if there is a proper role for Congress early on--and, of course, you understand the Congressional interest. We talk about under CRA, vetoing regulation and all of that. We can talk about how that has worked. I do not know that anything has been affected by the passage of that law. Mr. Arbuckle. Yes. Chairman Thompson. So now we are looking and seeing whether or not it would make sense to maybe get involved, have some technical expertise, just like CBO for budget matters, have some technical expertise for regulatory matters to get involved earlier in the process, not in order to disrupt or to kill, but in order to have some input in order that we might come out with better rules. So if there is an appropriate role at that first stage, what do you think that would be? Mr. Arbuckle. First of all, let me say that, as you indicated, this is a groundbreaking type of conversation about changing the procedures that have been in place for a long, long time. We have had the same discussions within the Executive Branch about where the appropriate entry for an oversight body like OMB should be in the rulemaking process, a process established by law and covered by legal requirements. Similar difficulties would arise, I think, across the two branches of government arising from Congressional interaction at the pre-decisional stage, a point at which agencies are trying to decide what exactly it is, they want to do, say, for a proposal. Once that decision making process took place, however, it seems to me it would be both appropriate and particularly useful to have the Congressional interests that produced the statutes involved in commenting on the rule and helping fashion the rule that would be developed through the comment process. Chairman Thompson. That does not sound like much of a role in the first stage, though, at the proposed rulemaking stage. Do you think the analogy to the OMB and the budget process is a good one? I am not sure I understand exactly when they come into this, and I understand that is not part of your primary responsibility, but it just occurred to me. You mentioned OMB. Perhaps we could take a look at that and see what they are doing, how that has worked in terms of what they do and when they do it. Mr. Arbuckle. Yes. Well, there, of course, is a long- established relationship between OMB and CBO in the creation of---- Chairman Thompson. I meant CBO, I am sorry. Mr. Arbuckle. Yes, in the creation of the President's budget, which eventually leads to legislation that is passed by the Congress where the decision making is made final. It is a little bit different in the regulatory process in that the grant of Congressional authority has already been made and it is the Executive Branch's job, then, to fulfill that. That is why we are having a little difficulty here in deciding when further involvement by the Congress would be appropriate. Chairman Thompson. We have had reports, as you pointed out, the last 3 years. Mr. Arbuckle. I think 2 years, actually. Chairman Thompson. Two years? Mr. Arbuckle. And then we have a third one that will be due, Mr. Chairman, this February. Chairman Thompson. What is it primarily--you kind of ticked it off, but what is the primary problem you see? I get the impression that you feel that it has worked pretty well and you have been able to do for those 2 years, and I assume the third, what has been asked of you. What is the primary problem as you see this legislation that our additional request would put on you? Mr. Arbuckle. First of all, let me say again that we think that the reports that have come out of the appropriations rider have been extremely useful in providing you and the Congress and the public with a basic overview of all the regulatory activity that is going on in the Executive Branch. The problem, as we see it, with S. 59 and S. 1074 is the accumulative level of detail. The Stevens Amendment that you originally referred to was approximately a dozen lines long, 17, something like that. The current amendment, the current rider that we will be operating off of expands that out, has a little bit more detail in it, and is more like 30 lines. Then this legislation is again quadruple that, and so on. It is that accumulation of detail more than any specific detail itself that causes us difficulty and makes us worry, particularly in a small office like ours with many responsibilities, about the resources we have available to meet these requirements. Chairman Thompson. I noticed here, if I have it correctly, that under the Stevens Amendment, it required estimate of the total annual costs and benefits of programs, including rules and paperwork, in the aggregate, first of all. No problem there, right? I mean, that is part of your requirement now? Mr. Arbuckle. Yes. We have done that. Chairman Thompson. And by major rule? Mr. Arbuckle. And we have done that by major rule for a limited time period. Chairman Thompson. All right. I think what we add here is by agency and agency program and program element. Mr. Arbuckle. Yes. Chairman Thompson. And that is where you begin to get a problem? Mr. Arbuckle. Yes. That is correct. Chairman Thompson. Is it because the information is not available or because it would take too much time with your limited resources, or all of the above? I hope I am not giving you any new ideas. Mr. Arbuckle. These are excellent answers to your question, sir. [Laughter.] Chairman Thompson. Is there anything you would like to add to that? Mr. Arbuckle. Let me comment a little bit about that. There are basically two types of information on regulations that we have available. One is estimates of programs that are already out there, that are already operating, that are already on the books, and the other is what cost-benefit analysis as we deal with it in our daily work entails, namely is looking at changes in programs or new programs and trying to predict the impacts that they are going to have, both the costs and benefits. So one is looking back to regulations that are already on the books. One is looking forward, and that is what agencies and we spend most of the time doing. In adding detail about programs and program elements, we are concerned that the intent is to try to create more data that is not regularly being prepared by agencies, which is not to say that it might be valuable, but that is not normally being prepared on the regulatory programs that are already in place and which have been out there in some cases for many years and decades. The bills call for two separate types of information; there is not now a structure, as there is for looking forward, to looking back. Chairman Thompson. Well, maybe there needs to be one. Mr. Arbuckle. You know, that is a good idea. This is not an either/or situation. Chairman Thompson. We are talking about hundreds of billions of dollars that these things are costing businesses and people, families. Mr. Arbuckle. Yes. Chairman Thompson. A little additional work and expense to some of these agencies or even to OMB does not give me that much pain in terms of a concept. It needs to make sense, but I think that is something that we ought to revisit. Mr. Arbuckle. Could I comment on that, Mr. Chairman? Chairman Thompson. Yes, go ahead. Mr. Arbuckle. I have been at OMB for almost 20 years in OIRA working on regulatory review and regulatory improvement. In all of the various administrations I have worked for, there have been efforts to do what we now call a look-back exercise, looking back at the regulations currently in effect. Nobody disagrees that it can be done, although there are difficulties in doing it. The problem is institutionalizing it in a way that keeps it going. In my experience, these have been exercises that have been tremendously labor intensive, that have involved the whole administration. That is what leads me to worry about the resource issue that I mentioned before for both ourselves and for the agencies. Chairman Thompson. Well, we have got an additional problem here, too, I think, Mr. Arbuckle. We asked GAO to review OMB's first two regulatory accounting reports and they interviewed seven distinguished economists who are experts in cost-benefit analysis about your reports and they were generally critical of OMB's performance. OMB officials reviewed our final list of cost-benefit analysis experts and no objections to those were included. So would you agree with their analysis? I guess you are maybe, you could argue, making your point here in terms of additional requirements because it seems to be a real problem with really adequately fulfilling what has already been given you. Do you agree with GAO's analysis or not? Mr. Arbuckle. It is certainly the case that there have been critics of the reports, and I would agree that there is much more work that we can do. As you mentioned earlier, we are all in a sort of a groundbreaking stage here, even if we have been doing this through my career at OMB over the last 20 years. There is in some cases, a lot of information available, but in many cases, very little information available. Trying to put that together is difficult--in effect, we need to do a cost- benefit analysis of that. Where do we want our agencies' resources and OMB's resources to be directed? Chairman Thompson. I get the impression sometimes that part of the problem is that OMB does not want to give us any more information than it has to. At Jack Lew's confirmation hearing, I asked him if he would include the costs of tax paperwork in the upcoming regulatory accounting report and he said that he thought OMB would do that, and when OMB issued its draft regulatory accounting report in August 1998, OMB did include the massive cost of tax paperwork, which it estimated at $140 billion annually. Then in OMB's final report, this number vanished into thin air. Do you know what happened and why OMB cannot report on the cost of tax paperwork and other paperwork? I mean, I would think it would be a fairly easy task, since OMB already tracks the number of burden hours consumed by paperwork each year under the Paperwork Reduction Act. As I said, it had come up with a number in terms of the draft report, but then, as if we would forget that we had asked for it, that it had appeared before, when we got to the final report, it was gone. It leaves us with the impression that you just do not want to disclose any more than you have to. Do you know what happened to that? Mr. Arbuckle. First of all, our intent is not to hide information from either you or the public. I do not think it is quite fair to say it disappeared into thin air. As I recall, in the final report, we did note the figure and referred to it in the final report, although not in as much detail as we had perhaps in the proposed report. The Treasury Department and the IRS are engaged in a mammoth effort to try to reinvent their program and we felt that it was uncertain right now as to what the burden actually is and what the appropriate method of measuring it should be. It is not as simple as it might seem. As you correctly point out, in the information collection budget, which we released some time ago, we point out how much burden Treasury imposes on the American public. But the Treasury Department is working very hard to try to create a methodology that more accurately measures that burden. Chairman Thompson. I would challenge you to show where that $140 billion estimate is in the final report. I do not think it is in there. If it is, show it to me and you will have my apology. Mr. Arbuckle. I will be happy to follow up on that. Chairman Thompson. Senator Saland, I appreciate your support of S. 59, the core proposal. I want to thank the National Conference of State Legislatures and all the ``Big Seven'' State and local government organizations for their letter of support of S. 59.\1\ --------------------------------------------------------------------------- \1\ The letter dated March 10,1999 appears in the Appendix on page 53. --------------------------------------------------------------------------- Can you describe the significance of the Big Seven's consensus on this issue and where it fits in relation to the other issues that State and local government associations are advancing in Congress? Mr. Saland. It would be my pleasure, Mr. Chairman. Would you be kind enough to indulge me, if I might, if I could just revisit a couple of comments that I had made earlier---- Chairman Thompson. Yes, sir. Mr. Saland [continuing]. And unless it would be inappropriate, maybe make some comments. I do not want to turn this into a debate with Mr. Arbuckle's comments. Chairman Thompson. No. We do that up here every once in a while. Mr. Saland. OK. First, let me say---- Chairman Thompson. I am sure it is different than the State Senate in New York, right? Mr. Saland. I never cease to be amazed. Chairman Thompson. Everything is done by consensus. No, that is good. Interchange of ideas is good. Mr. Saland. Your experiences with your administration's Budget Office seem strangely parallel to that which we deal with our Division of the Budget. I would like to, if I might, go back and just point out that with our States, generally, if I can do this in terms of generalities, from the proposal of regulation, on average, there is a 30- to 60-day period within which the appropriate committee, regulatory committee, is then able to act. What we have found, and I am sure your experience would be the same, is that the mere presence of this oversight authority generally has an effect on eliminating regulatory excesses and the proposing of unreasonable regulations. I would just merely submit that what would be the justification of not creating a system parallel to the system that you already have created for UMRA. I am troubled by comments to the effect that the administration should be cooperative with the legislature, where appropriate. I am troubled by, in effect, picking and choosing what you should be held accountable for in terms of disclosure. You and I, although I certainly not at the level that you have attained, are required to be responsive by way of representative government. There is a certain comfort level when one does not have to go through that process and there is a certain resistance to change regardless of what the process may be. I would submit to you that there is little or no reason why one should assume that if this can be done in a piecemeal fashion, once the system is created, certainly with the resources at the fingertips of the administration, certainly with the technology that the administration and we all have at those very same fingertips, once the process is up and running, there is no reason why we can assume it is going to be that labor intensive nor that difficult. Going back to your question, and I am sorry if I went astray here, certainly, what you are proposing is most harmonious with the Big Seven's approach to the issue of federalism. We believe this would be a very key component as part and parcel of the Big Seven's approach to federalism, and may I point out, and I am sure you are aware and perhaps some others may not, it is not that often that the Big Seven comes together and coalesces on a particular issue. This happens to be one of those issues. Chairman Thompson. That is what I was thinking. Mr. Saland. We occasionally find ourselves at odds. We are speaking with unanimity and one voice on this particular issue. It is critical to us at all levels of local and State government that we have the ability to know, we have the ability to basically plan, we have the ability to understand the process that brought these regulations to us. Chairman Thompson. Along those lines, I was interested in your view of the requirement for an analysis of the cumulative direct and indirect impacts of Federal rules on State and local government. Mr. Saland. It would certainly seem to me that that would be critical, absolutely critical to any package that you may ultimately enact, Senator. The reality is, is that the piecemeal approach really, I do not think, does a heck of a lot for anybody. If you are going to be selective, if you are going to effectively have the ability to pick and choose what you shall disclose, one can not know the overwhelming cost. You in your comments made reference to hundreds of billions of dollars. There are things that come back to us. If we do not know those costs, we have a problem. I merely recite to you one of the problems which we have had to deal with in recent times, certainly most recently, the requirements for Federal standardization of licenses, certainly an onerous responsibility that we are going to have to contend with and no dollars coming with it. Nobody has basically factored in what that expense is, and while I realize that effectively is on hold, I am not quite sure when we will be required to be responsible. Chairman Thompson. Do you have a constitutional requirement to balance your budget, the way we do in Tennessee? Mr. Saland. Yes, we certainly do. Sometimes, it is very artful, I must confess, but they are balanced. Chairman Thompson. Thank you very much. We could spend a lot of time, all three of us, I am sure, discussing this. I want to thank both of you for coming. I would like to follow up on some of the things the States are doing in a little bit more detail, if we could, and Mr. Arbuckle, I appreciate your thoughts. We do not want to overburden, and some of this, sometimes I get a little bit sensitive to whether or not we are, instead of really changing things, we are laying on another layer and then going to forget about it and move on. So I am not locked in concrete on the details of a lot of this stuff. I do really want to know how it works. But when we decide how it works, then OMB needs to do its job and do what it is supposed to and be responsive to what we are trying to do up here, and that is the message that I would like for you to go away with. Mr. Arbuckle. We will be happy to work with you, sir. Chairman Thompson. I appreciate it. Thank you, gentlemen. Mr. Saland. Mr. Chairman, you made reference to a letter from the Big Seven. Chairman Thompson. Yes. Mr. Saland. Am I correct in assuming that is the letter of March 10 and it is already part of the record? \1\ --------------------------------------------------------------------------- \1\ The letter referred to appears in the Appendix on page 53. --------------------------------------------------------------------------- Chairman Thompson. I believe that is the one. Mr. Saland. Thank you. Chairman Thompson. Thank you very much. I appreciate it. I would like to turn now to our second and final panel. With us today is Arthur J. (Jim) Dyer, a small business owner from my home State of Tennessee. It is good to have you with us, a friend of mine. He will be followed by Dr. Robert Litan from the Brookings Institution. Our third witness will be Dr. Murray Weidenbaum, the Chairman of the Center for the Study of American Business. Professor Sidney Shapiro from Indiana University's School of Policy and Environmental Affairs will then testify. The final witness today will be Gary Bass, Executive Director of OMB Watch. I want to thank all of our witnesses today for being with us here on this second panel. These are important issues that we are confronting and we appreciate all of you for taking the time to give us your input on them. We will keep the record open, incidentally, for 1 week for Members of the Committee to submit written questions and any additional statements for the record. Mr. Dyer, welcome. It is good to see you again. Would you like to start off with any comments you might have. TESTIMONY OF ARTHUR J. DYER,\2\ PRESIDENT, METAL PRODUCTS COMPANY, ON BEHALF OF THE NATIONAL ASSOCIATION OF MANUFACTURERS Mr. Dyer. Thank you. I appreciate the invitation to be here, Mr. Chairman. I am Arthur J. Dyer, the President of Metal Products Company, a small manufacturing company in McMinnville, Tennessee. We are a family-owned business, about 50 years old, and today we have almost 100 employees. --------------------------------------------------------------------------- \2\ The prepared statement of Mr. Dyer appears in the Appendix on page 82. --------------------------------------------------------------------------- I am representing the National Association of Manufacturers today. The NAM is the largest industrial trade group in the United States and has over 14,000 member companies with approximately 10,000 small manufacturers like Metal Products Company. The NAM represents 85 percent of the U.S. manufactured goods and the members represent also 18 million employees. The NAM's mission is to improve the living standards of the American worker by shaping a regulatory and legislative environment conducive to U.S. economic growth. NAM supports both the Regulatory Right-To-Know Act and the establishment of a Congressional Office of Regulatory Analysis. Both will contribute to improving the regulatory process and the efficiency of the regulations themselves. We believe that neither will hurt public safety, public health, or the environment. American manufacturers today cannot simply raise prices to improve our bottom line. Given the competition of the global economy, we have to look for ways to lower costs constantly. Regulations, even good ones, add costs. These regulation burdens have accurately been called hidden taxes, and like any tax, the American taxpayer should have a right to know that the money is being spent wisely. My employees and I must constantly look for ways to improve our productivity on the shop floor and lower costs, but I would be a fool to sit in my office and dictate how a man should run his machine on a shop floor. I need to go out and listen to that fellow because he is closer to the problem than I am. I do not see why government cannot do the same thing. I am not anti-government or anti-regulation. My employees are important to me. Their children go to the same schools as my children. They are on the same ball team. I have employees that go to my church and live on my street. It is important to me that they are safe in their work environment and I appreciate how regulations have improved worker safety. I am not anti-environment, either. We live on the banks of the Barren Fork River that flows through McMinnville. My children canoe and fish and swim in that river. I do not want to see it polluted. But I do think that we should concentrate on making sure that the regulatory burden is worthwhile and that we accurately prioritize our regulatory goals. I believe that the legislation that you are proposing would go a long way in doing that. S. 59, with the public notice and comment provisions, would allow experts outside the peer review process to comment on the methodology and perhaps offer better ways to analyze the cost-benefit analysis. CORA would serve as a natural and, I think, complimentary counterbalance to OIRA and the OMB and I think it would be important to have a different view when you are analyzing the net benefit of these regulations. I also think it would be important for CORA to be able to propose alternate ways of achieving the regulatory goals. I think that there are many ways to do something, and just like in our business, we cannot do things the same way that we have always done them. We have to keep looking at new ideas and go back and look at what we have done for years and maybe see if it is still appropriate. I do not see why it would not be appropriate for government to look at old regulations and see if they are really useful anymore. In summation, I believe that American business people truly want to do what is right for their employees, their customers, and their country. The Congressional Office of Regulatory Analysis and the Regulatory Right-To-Know Act would provide all Americans, from Members of this Committee down to my employees and me, an opportunity to have a more open and honest debate based on more objective information about how regulatory agencies reach their decisions. We all want to do what is right, but in today's competitive global environment, we simply cannot afford to waste time and money on the wrong regulatory solutions. I would be happy to answer any questions you may have. Chairman Thompson. Thank you very much. Dr. Litan. TESTIMONY OF ROBERT E. LITAN,\1\ PH.D., DIRECTOR OF ECONOMIC STUDIES AT THE BROOKINGS INSTITUTION AND CO-DIRECTOR OF THE AEI-BROOKINGS JOINT CENTER FOR REGULATORY STUDIES Mr. Litan. Thank you. I appreciate being here again today. I am especially grateful that you invited me here to be reunited with my college debate partner, Professor Shapiro, whom I have not seen in 30 years. We are still debating after all these years, and it turns out we are now on the opposite side. --------------------------------------------------------------------------- \1\ The joint prepared statement of Mr. Hahn and Mr. Litan appears in the Appendix on page 91. --------------------------------------------------------------------------- I will get right to the bottom line. Both of these bills are good legislation and they should be passed, although in our written testimony, we have some suggestions for modification. The case for S. 59 is simple. Congress and the public deserve to know on a regular basis, the same annual basis on which the budget is prepared, the estimated impacts of Federal regulatory activity, in total, by agency, and by major program. OMB has been doing most of this, as we just heard, at the behest of Congress for the past 2 years. They should keep on doing it. Now, in our testimony, we review some of the objections to this that we are likely to hear in a few minutes, and I will be happy to take those up in Q and A. But the basic message I will leave you with at this point is that these objections remind me of generals who are fighting the last war. The war over the usefulness of benefit-cost analysis is over. The government has been doing it for 25 years, although imperfectly. The right approach is in S. 59, which sets up a process that will make the government do it even better, rather than to just simply throw one's hands up and say that analysis cannot or should not be done. If anything, there is a need to do more cost-benefit analysis of on-budget programs as well as regulatory programs. Mr. Chairman, I just finished serving as the main writer for a report by the President's Commission on Capital Budgeting that had bipartisan membership, Republicans and Democrats, and one of those recommendations in the report was that all major Federal programs, budget programs, should have a cost-benefit analysis performed on them. That same logic, it seems to me, easily carries over to the regulatory sphere, illustrating again strong bipartisan support for this concept. The proposed CORA legislation would further improve matters by giving Congress in the regulatory sphere what it has long had in the budgetary arena, namely a source of independent analysis on the impacts of regulatory activity, which, as you have noted, are now quite substantial. As useful as the regulatory review by OMB is, and with all due respect to Mr. Arbuckle and his team, whom I admire and once worked with from afar, OMB faces inherent political constraints that prevent it from providing Congress and the public with totally independent analysis. If you need any evidence of this, you do not have to look any further than the GAO report which just came out today which documents in thorough detail that OMB is constrained because it is part of the same administration as are the agencies that are issuing the rules that Congress mandated originally ought to be written. In my few remaining minutes, I will just tick off a few suggestions for modification of the proposals. I may not get through all of them, but they are in the testimony. First, on S. 59, we suggest that OMB ought to be required to recommend in its annual report some minimum number of regulations or programs that ought to be reformed or eliminated. This does not override the current policy making process, as implied in Mr. Arbuckle's testimony. In fact, if anything, it just simply directs how the policy making process should proceed within the administration. Second, OMB should be similarly required to identify some minimum number of regulations where its assessment of the likely impact of regulation substantially differs from that of the agency. Third, in a similar vein, the bill should require OMB to review the regulatory analyses of a selected number of existing rules each year. This would help start to develop some estimates independent of those of the agencies. Fourth, the bill should make clear that the estimates are to be stated in monetary terms, to the extent practicable. And fifth, the Congress should take into account in setting agencies' annual appropriations the degree of agency compliance with OMB's guidelines for reporting costs and benefits. Let me conclude with a few thoughts on CORA. Briefly, we do not believe that CORA should do its own regulatory analyses of every rule, as the Shelby-Bond draft would mandate. This simply would duplicate what is already going on in the agencies. Instead, we think that CORA should perform the same kind of broad review of options and analysis that OMB now conducts, but CORA will be more independent. We also suggest that CORA not review non-major rules and that it confine its assessment to major rules and focus also on the OMB annual report. You raised this question in your Q and A with Mr. Arbuckle about when CORA should get involved. We suggest in our testimony at the notice of proposed rulemaking stage and that the bill ought to encourage CORA to file comments in the rulemaking record. It does not have to do it because it is always going to put out a final report at the end, but I would suggest that if CORA is putting these comments on the record, it will become the 800-pound gorilla of commentors. The agencies will pay more attention to CORA, it seems to me, than probably anybody else, and, in fact, what will happen over time is that the agencies will pay so much attention to Congress through CORA that it will, I think, eliminate or substantially reduce the number of rules that are challenged in court. This is because if a rule is issued and CORA basically says ``fine'' at the end of the day, it will make it much more difficult for those who are challenging rules to actually sustain their challenges in court. So if anything, a CORA will streamline the regulatory process and at the same time give Congress the source of independent analysis that I think you need and deserve. Thank you. Chairman Thompson. Thank you very much. Unfortunately, I have just a few minutes left on a vote that is occurring right now. If you will bear with me, let me go over and vote just as quickly as I can and then I will return and we will continue. Thank you very much. [Recess.] Chairman Thompson. Mr. Weidenbaum, we are especially honored to have you here with us today. Thank you very much, and proceed with any statement that you would like to make. TESTIMONY OF MURRAY WEIDENBAUM, PH.D.,\1\ CHAIRMAN, CENTER FOR THE STUDY OF AMERICAN BUSINESS, WASHINGTON UNIVERSITY Mr. Weidenbaum. Thank you, sir. It is a great pleasure to be here, Mr. Chairman. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Weidenbaum appears in the Appendix on page 108. --------------------------------------------------------------------------- The legislation you are considering will raise the level of public understanding of a very important area of public policy. Here is the case for S. 59 in a nutshell. Neither benefits nor costs of regulations show up in the totals of Federal spending or taxation, but the amounts are very substantial, totaling many hundreds of billions of dollars every year. The public has a right to know this information on a regular basis. Regulation affects so many aspects of our lives, economic factors, such as employment, inflation, productivity, and competitiveness, as well as social factors, such as the environment, consumer and employee safety. Some say that data on regulatory benefits and costs are not reliable. Let me hit that one right away. As a pioneer in developing this information, I am aware of the shortcomings and also the progress made. But, Mr. Chairman, criticism is still leveled against the data on the gross domestic product, yet the government goes on to produce that information and it is used for essential decision making in both the public and the private sectors. If you really want to see shortcomings in the data, look at the budget that the Congress acts on. Treasury's projections of capital gains taxes and corporate income taxes are often way too high or way too low. Similar problems arise on the spending side. Estimates can be way off for credit programs, the CCC (Commodity Credit Corporation) military procurement, and entitlements. But whatever the limits, this kind of data is useful, as are the data on benefits and costs of regulation. That has alerted the public to the huge magnitude of resources involved. I see no reason to deprive the public of this vital knowledge. And there is a positive feedback effect, as we learned in the budget data. By making permanent the temporary requirement for an annual regulatory accounting, S. 59, likewise, will encourage the Executive Branch to develop a better database. Let me hit just a few procedural details. OMB reports, in response to the Stevens Amendment, lack the data that we need on individual regulatory agencies and programs. Thus, Section 4(a)(1) in your bill is badly needed. But I think we need to be sensitive to the concerns about the load you are imposing, so I would say going on to include distributional effects generates too large a research burden that would delay the entire effort to measure benefits and costs. I urge you to eliminate it. Likewise, 4(a)(2) seems to require extensive research on the indirect effects of Federal rules. I think, instead, estimating costs and benefits should get priority. That is a big enough job. Analysis of impacts could rely on studies prepared by private researchers. On the other hand, there is merit in estimating future costs and benefits. Given the burden imposed by S. 59 to prepare historical data, I urge you to phase in this requirement. Advance warning will give the agencies time to develop new methodologies. Chairman Thompson. Excuse me. Phase in which requirement? Mr. Weidenbaum. Phase in the requirement for making forecasts of future benefits and costs. That will take time to develop, so perhaps you can phase in the aggregate projections in the year 2003, projections by agencies in 2004, estimates by program element in 2005. Yet Section 7 on peer review, I think, is essential to enhance confidence in the data. But peer reviews usually involve more than one peer. I urge the Committee to provide for two or more. Several public policy research centers have the required capability. Turning to the companion bill about CORA, an expanded flow of regulatory data means that Congress, I think, really needs its own staff to analyze the information, but I do not believe bills like S. 1675 go far enough. After all, this proposal is limited to improving the way agencies write regulations. But key decisions on regulation occur earlier. When you all write an OSHA Act or a new Clean Air Act. There is an information gap here, I suggest that each Congressional Committee when writing a regulatory statute should consider the expected benefits and costs and that data should be provided by CORA. Where do you put CORA? It could be independent. It could be part of CBO. There are pluses and minuses on both of that. But I think the substance is important. It should focus both on the early stage where Congress is writing a new statute and on the latest stage where under SBREFA (Small Business Regulatory Enforcement Fairness Act) you are reviewing proposed regulations. Accompanying my formal statement is the CED report on modernizing government regulation, which covers that in more detail. As you might suspect, I helped to write it.\1\ --------------------------------------------------------------------------- \1\ The report referred to appears in the Appendix on page 260. --------------------------------------------------------------------------- To summarize quickly, enacting S. 59 and establishing an Office of Regulatory Analysis would be important improvements. It is gratifying to see the bipartisan nature of these bills and of their Congressional supporters. Their enactment would raise the information level of deliberations on regulation and might even lower the decibel level. Thank you very much. Chairman Thompson. Thank you very much. I appreciate it. Professor Shapiro. Mr. Shapiro. Thank you. When I debated with Bob Litan, I usually tried to go second so I could do any necessary clarifications that were necessary, and I am happy to play that role again. Mr. Litan. We were on the same team then. Mr. Shapiro. Even more necessary. Chairman Thompson. You have to keep in mind, you only have a few minutes here. TESTIMONY OF SIDNEY A. SHAPIRO,\2\ VISITING SCHOLAR, SCHOOL OF POLICY AND ENVIRONMENTAL AFFAIRS, INDIANA UNIVERSITY Mr. Shapiro. Bob Litan suggested maybe I and others who have reservations about S. 59 are fighting the last war, and I do not think that is necessarily the case. Clearly, as he said, cost-benefit analysis is here to stay. But the issue is what to do with it in light of its real limitations on what economics and economic data can teach us. How do we best use the numbers in light of the very real limitations we understand and know about to make all of us a little smarter in terms of how we do regulation? --------------------------------------------------------------------------- \2\ The prepared statement of Mr. Shapiro appears in the Appendix on page 114. --------------------------------------------------------------------------- Second, most of what we want to know about regulation deals with individual rules. Cost-benefit analysis is particularly revealing when we go rule-by-rule and look at the particular benefits and costs that they may yield. Yet S. 59 is not about rule-by-rule cost-benefit analysis. It is about aggregate or total costs and benefits, and when those are compiled, particularly in light of the real limitations of the data, I think it has very little to teach us about the merits of particular policy disputes. I would also like to mention Dr. Weidenbaum's point about the gross national product. During the break, I was getting a very interesting economics and historical lecture from him, very informative--always good to be a student--about those numbers, and as he mentioned in his testimony, there are certainly limitations about those numbers, and yet we use it, and of course we do. But this is a little bit different in two ways. First, as you heard from OMB, there is a diversion of resources here. If we produce these numbers, we cannot be doing other things. So we have to weigh the value of these numbers and what they have to say and what we can get out of them versus other things that agencies can be doing, particularly their statutory mandates of protecting the American public. Also, there is the matter of understanding what these numbers finally mean. Will the production of regulatory accounting teach the American public about costs and benefits of regulation? Well, sure, to some extent. But, on the other hand, if you only produce numbers, if you only have tables and tables of numbers, you lose in a very real sense important qualitative information that is also necessary to assess the costs and benefits of regulation. In that regard, I would point to EPA's Section 812 study, which was mandated by Congress. EPA was told to estimate the total costs and benefits of the Clean Air Act, and it did so and it is continuing to do so, and it produced a very thick study its first time out. The study was subject to extensive peer review. That is really the way to do regulatory accounting, to my mind, because EPA in a qualitative sense as well as a quantitative sense was able to describe the costs and benefits. I would note also from the EPA's study that this type of regulatory accounting does not come cheap. The study took 7 years to complete, cost millions of dollars, and I would guess S. 59, which is much more ambitious, would cost even more. I would also point out that when EPA went to estimate the benefits, because of data limitations, the best they could do was estimate that the total benefits were somewhere between $5.6 and $49.4 trillion, a huge magnitude. Because of that, we really do not learn much about the clean air program, or we certainly do not learn as much as focusing on individual policies and policy choices. In light of these limitations, I would urge some degree of modesty is necessary, that we proceed slowly to try to total up these costs and benefits, and I would urge second that we need to find better ways to mix qualitative and quantitative information so that the numbers we produce are accurate and helpful representations and pictures of the regulatory process. Chairman Thompson. Thank you very much. Dr. Bass. TESTIMONY OF GARY D. BASS, PH.D.,\1\ EXECUTIVE DIRECTOR, OMB WATCH Mr. Bass. Thank you, Mr. Chairman. I think one thing that might be helpful is if I go back and trace some of the elements of the regulatory accounting bill and that might help to identify why we oppose both the accounting bill as well as the CORA bill. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Bass appears in the Appendix on page 130. --------------------------------------------------------------------------- Going back to the original Stevens rider, as I understand it, there were four requirements: An estimate for total annual costs and benefits of regulations; an estimate of the costs and benefits of rules having an annual impact of $100 million in costs or more; a third requirement to do direct and indirect impacts on private sector, State and local, and Federal Government; and then, fourth, recommendations for reform or repeal. My understanding of the history is that Senator Stevens, who authored it, Senator Roth, Senator Glenn, and Senator Levin had a number of exchanges that emphasized that there was no need for new research. The idea was to rely on existing materials. I pulled out Senator Levin's comments saying the amendment simply directs OMB to pull together information that it already has on existing Federal regulatory programs and to use that to estimate the total annual costs and benefits. He said, in fact, that is why he was supporting it. And in the next year, when Congress again adopted the Stevens language, Mr. Chairman, you reiterated at that time you did not expect to increase the workload on OMB, that they could rely on existing studies. It was after that that OMB published its second report, which warns very carefully that, ``We still believe that the limitations of these estimates for use in making recommendations about reforming or eliminating regulatory programs are severe. Aggregate estimates of the costs and benefits offer little guidance on how to improve the efficiency, effectiveness, or soundness of the existing body of regulations.'' That echoes what Professor Shapiro was just indicating about the need for doing individual reviews and what we heard yesterday in the discussions of S. 746. Despite this, the third regulatory accounting rider changed dramatically. And by the way, I should mention, I am very pleased that today there was a hearing, because there has been no previous hearing on this subject. In the third rider, I want to point out five changes. First, you changed it from an annual process to every 2 years instead. Second, the total annual costs and benefits requirement expanded in a number of ways to cover both rules and paperwork and require aggregate estimates by agency, by agency program, and by major rule. With these new requirements, you included the clause ``to the extent feasible.'' The third change was under the direct and indirect impacts. You dropped ``direct and indirect'' impact and just said look at impacts. You also dropped the Federal Government, the private sector and added wages and economic growth and tribal governments. Fourth, you added this notion that OMB is to provide guidance to standardize cost-benefit measures. And fifth, you had a requirement that the OMB guidance, as well as the accounting report, must be subjected to peer review. Under this bill, you again expand and change significantly what was done last year in seven distinct ways. First, you go back to making it annual. Second, you drop the clause ``to the extent feasible'' when doing the annual estimate. Now, that is critical from our perspective because, while there are numbers for major rules on costs and benefits, there are no cost-benefit analyses done for non-major rules. With the language ``to the extent feasible,'' OMB, and the agencies, did not have to create new research. By dropping that, S. 59 requires a whole new set of data. In addition, while you mentioned earlier today that under the Paperwork Reduction Act there are burden estimates, there are not cost-benefit numbers, so the agencies or OMB would be required to generate those kinds of numbers anew. Also under the annual estimate, you added a new category called program elements, which are related components. So there is an additional estimate there as well. Under the impact section, you have reintroduced direct and indirect impacts, even though OMB highlighted the importance and mentioned repeatedly that doing indirect impacts is very difficult, if not impossible, to do. You added back in the private sector to look at, a very comprehensive piece. And then, unlike the discussion on S. 746, you made a major point in this bill to emphasize quantified net benefits. Now, OMB points out in its research and its reports that the only way to do net benefits is to monetize all factors. You are moving more in that direction. Fifth, all of this covers the 4 preceding years. Sixth, you propose the peer review is to be done by an outside entity as though the Federal Government is not competent to do it. The GAO report that has been referred to today identifies seven leading experts who would be likely peer reviewers, all of which have a very conservative viewpoint. Most interesting, though, is the seventh point in this bill, which is that, unlike public comments which are to be considered by OMB, you would require the peer review materials to be used by OMB, not just to be considered. All of this moves far away from the original intention of not generating new research and would clearly grind agencies to a halt. Let me make three comments about CORA. What you propose is to have CORA do in 45 days a regulatory impact analysis, but it takes agencies years to do. Second, you require CORA to generate regulatory options that would achieve the same regulatory goal but at a lower cost, which is a completely different standard than what agencies must go through. On top of this, it raises serious questions about political manipulations and activities. Third, the whole office would be highly political in the sense that the Director would be appointed by the Majority Leader and the Speaker. One last comment I want to make about CORA. You referred to this as a question earlier: Is this like the budget process? I would argue it is not like the budget process. In that case, the Executive Branch proposes, you, Congress, dispose. In the case of the regulatory process, you generate the law and it becomes the Executive Branch's responsibility to implement that law or execute it. You have oversight at any point in that process, through hearings, through legislation, any approach you want. So it is different than the budget process and I would not make them identically compared. Thank you. Chairman Thompson. All right. Thank you. Let us address the question of whether or not this is going to require a lot of new resources. You said, Dr. Bass, grinding agencies to a halt, and you point out that we have expanded the scope of the statutes as we have gone along. The question arises, do the agencies have the tools? What tools do they have now in order to comply with the statute, were it to become law? Are they available now? What kind of burden would be imposed on them? Dr. Litan, do you have any thoughts on that? Mr. Litan. Well, the amount of cost obviously depends on the scope of what OMB is asked to do on S. 59. My guess is that to faithfully provide the disaggregated estimates, not only just the totals but the agency and the program numbers, there may be some additional expenditures. I cannot tell you how much. Your Committee can ask OMB for them. My view is it is money well worth spending. If it is several extra million dollars, it is a drop in the bucket compared to hundreds of billions of dollars that we impose on the private sector. The second thing I would add is that if you have a choice in terms of where to spend the money--and don't have sufficient funds to spend more money both on a CORA and more analysis at OMB--I would give higher priority to creating CORA because you are more likely to get greater bang for the buck in terms of having another independent estimating body out there. So I would give priority to CORA. Ideally, of course, I would spend money on both agencies. I do not think you are talking huge numbers, maybe $5 or $10 million. These are rounding errors in the overall size of the budget. Chairman Thompson. What about, expanding on that a little bit, Dr. Weidenbaum, what about the ability of the government? This kind of runs into my basic notion that we oftentimes think we know more than we really do, that we do not appreciate our own limitations and we feel like if we can apply the right green eye shade method to a problem, we can figure it out forever, and it never works out that way. What about the question of whether or not we really do have the tools to make these assessments? You talk about the progress in terms of cost-benefit analysis and how that is the current thinking now, although we are still having trouble getting that implemented in terms of major rules. But especially in light of the fact that we are talking about non-quantifiable costs as well as benefits, is it feasible, does it really help us when we roll in the quantifiable and the non-quantifiable all in the same number? Can we really do that? Does it really mean anything? Is the state of the art, as it were, such that we can get something that is meaningful to us? Mr. Weidenbaum. First of all, I think that we need to be sensitive to the serious concerns that have been expressed at this hearing about the burden, and as you put it, the availability of resources to carry out all this analysis. Personally, I think the number one priority should be estimating the benefits and costs of Federal Government regulation. That is a tall order in itself. All the other, frankly, nice-to-know information, the direct, indirect impacts, I would put aside for later. It is not that they are not important, but you cannot do everything at once. But if you devoted 1 one-hundredth of 1 percent of the likely total cost imposed by regulation, 1 one-hundredth of 1 percent of that to analysis, you would have a tremendous pot of money, more than is feasible to spend. So we are talking about devoting a very relatively minute amount of money. Do we have the resources? I think if you focus laser-like just on that one point, estimating benefits and costs, and I think you are right in here, you do have, contrary to what one of the witnesses said, you do specify that you want benefits and costs by major rule. That is Section 4(a)(1)(C). The reason you need that is that is the bread and butter, that is the basic building block for all the other data, whether it is by agency or in the aggregate. Can it be done? Yes. Are there difficulties? That is why I talked about all the difficulties we still debate about the gross domestic product, about the balance of payments. You know, if the two witnesses, interestingly, to my left, were around when the Congress was considering the Budget and Accounting Act of 1921 and all your predecessors took them seriously, we would not have a modern budget process today. Are we in better shape now in dealing with regulation than our forbearers were in estimating revenues and all that back in 1921? I think the answer is yes. We have advanced the state of the art. I hope that a stripped-down version of S. 59, deferring all the nice-to-know but items not directly related to benefits or costs of regulation, a stripped-down version be voted on so the task can get going right away. Chairman Thompson. Let me make sure I understand what your recommendations are. First of all, the distributional effects, you do not think that is necessary? Mr. Weidenbaum. Not at this stage, no. Chairman Thompson. Dr. Litan, would you agree with that? Mr. Litan. I agree. Chairman Thompson. Also, as I understand it, under Section 4(a), costs and benefits, first in the aggregate, second, by agency, agency program and program element, would you leave that in? Mr. Weidenbaum. Yes, sir. Chairman Thompson. Third, by major rule, you indicated you would leave that in? Mr. Weidenbaum. Yes, sir. Chairman Thompson. Then we get to two here, and I take it that you would eliminate that, an analysis of direct and indirect impacts of Federal rules on State and Federal and local government---- Mr. Weidenbaum. Correct. Chairman Thompson [continuing]. The private sector, small business, wages, economic growth. Is that what you were---- Mr. Weidenbaum. In good measure, that is already taken up in the estimates of benefits and costs. So I would not have a second, in a sense, competitive set of analyses. Focus on estimating the benefits and the costs. Chairman Thompson. You are getting more speculative there, I mean, just to use a lay term. It seems to me like when you get into this, you are getting more speculative. Mr. Weidenbaum. That would be fine for a narrative section, where OMB could pull together a great variety of studies done by private researchers on direct and indirect impacts. But OMB and the agencies themselves would not be developing this de novo. Chairman Thompson. Let us turn the page now, at least the way my statute is drafted here. Section 4(b), benefits and costs, it says, to the extent feasible, the Director shall quantify the net benefits and net costs under Section (a)(1). How do you view that? Mr. Weidenbaum. Well, I interpret that as follows. If in the given program the non-quantifiable, the verbal benefits or costs are so substantial they overshadow the measurable, then it is not feasible to do the net benefit. That says, just quantifying is not useful where the non-quantifiable is so important. I do not know how you would legislate common sense, but my interpretation of this is common sense would go a long way. Chairman Thompson. Mr. Dyer. Mr. Dyer. Well, I would just like to make a comment that I know in Washington you are very concerned about the money that is spent. You have got to work on your budget. But I am on the receiving end of these hidden costs and these burdens, and looking at the tremendous costs that our regulations put on our economic activity, I am reminded of an expression that we have at work. I do not want a dollar waiting on a dime. I think the amount of money that we would spend delving into these matters a little more would be well spent if it can save some unnecessary regulatory burden. Chairman Thompson. I appreciate that, too, and I was looking at some figures here. One study by the Small Business Administration found that in small companies with less than 20 workers, the annual cost of regulation is about $5,500 per worker. By contrast, the SBA study found that the regulatory cost for large companies with over 500 workers is about $2,900 per worker. So this impacts on you guys more than it does anybody else, really. That is why I am glad to have you here today. Mr. Weidenbaum. I am also glad you are citing the work by Dr. Tom Hopkins, who is a distinguished adjunct scholar at our Center for Study of American Business. We both appreciate your plug. Chairman Thompson. Glad to do it. Mr. Bass. Mr. Chairman, in the spirit of debate, could we respond to some of that? Chairman Thompson. Yes. I was getting ready to go back to you, but just go ahead. Mr. Bass. I would like to make five points based on the conversations that just happened. One is that, looking at the Congressional Budget Office's figures, a cost-benefit analysis costs about $570,000 on an average. Just doing some very quick math based on a piece of work that was out on the front table by Angela Antonelli of the Heritage Foundation, she seems to indicate that there are about 4,000 to 5,000 rules per year. That means over $2 billion would be spent on doing cost-benefit analysis, not including paperwork. That is assuming that all rules receive a comprehensive CBA. The point would be that we are talking about a sizeable amount of dollars and resources for the agencies. Second, I am very intrigued by Dr. Weidenbaum's idea of retrospective review of rules, in part because we do not have an opportunity, as you heard at yesterday's hearings, to reassess the kinds of costs that the market takes on in making adaptive changes to lower the cost of actually doing a regulation, and there was some research that was referenced in several of the testimonies to make that point. So I am intrigued about the looking back and reassessing costs. Third, in terms of the net benefit issue, in the OMB report, on Table 3--I just pulled it out--what they do here is very interesting. In coming up with net benefits, OMB does not include a quantifiable number for lives saved because they say that an assessment of net benefit requires subtracting the benefits from the costs, which means they have to monetize all factors. If we do not monetize, then we cannot get to the net benefits. The fourth point is if there is a lack of information, as several of the panelists have suggested, about major rules, about individual rules and about the impact of costs and benefits, go to GAO's web site. Already, this information is all up there, freely and widely available. The last point I would make is about the issue of distributional effects. I believe where it is in your bill is under the definitions of cost and benefits. I would be concerned that in dropping it, there would be nothing that addresses equity. And if distributional effects was intended to reach that path, one would want to be sure to include something that addresses equity concerns along those lines, much like the Executive Order 12866 does already. Chairman Thompson. Thank you. Dr. Shapiro, did you have any comment on that? Mr. Shapiro. Thank you, Mr. Chairman. I appreciated your comment earlier about inquiring whether we are adding layer upon layer here and just how much we will get for the additional layers. When one goes to total up the costs and benefits, if we had individual agency estimates of every cost and benefit of every regulation, then I suppose it would be a simple accounting function. But much of today's regulations are based on rules that were passed 20 years ago, 25 years ago, when, for good or bad, we did not do as good a job of estimating the costs and benefits. So as to that historical data, which still have ongoing costs and benefits, we really do not have the costs and figures. The academic studies have done their best to estimate those, but they are full of tremendous gaps and OMB discusses those gaps when it tries to pull together the historical data. Now, for the more recent rules, we do have estimates of costs and benefits for the major rules, but as Dr. Bass just pointed out, not for the minor rules. Even there, however, when you ask, do agencies have the tools necessary, it is a tough job to estimate individual costs and benefits for any one rule, which explains in part the high cost you just heard about of $570,000. Let me just offer one example. It is often the case that it is difficult to come up with precise estimates of risk. How much risk are people at because of some ongoing industrial activity? I noted earlier the EPA study of the Clean Air Act benefits ran from about $5 trillion to $200 trillion because of the imprecise nature of the numbers risk assessors give us. Chairman Thompson. And they decided the benefits were about 40 percent of the gross domestic product, I believe, did they not? Mr. Shapiro. There you go. Someone once tried to put a number to this. Unfortunately, this example is now kind of dated because of the budget surplus, but an economist once explained, or a risk assessor once explained, that these risk assessments are so imprecise that if you take the lower bound and the upper bound, it is the difference between a cup of coffee and paying off the national debt. We simply lack those numbers, so we are forced to retreat to qualitative factors. Chairman Thompson. But they are out there and you know when you are going to put those numbers out. I would say in EPA's case, for example, they have received a tremendous amount of criticism and even ridicule about some of the numbers they have come out with. Is not there a salutary benefit to knowing that when you put numbers out, that the best people in the world are going to be out there and looking at them and commenting on them and so forth? Does that not produce something in the mental processes that has benefit? Otherwise, you are totally at the mercy--nobody is accountable. Nobody really ever has to worry about it. I say nobody is accountable, but we all know that there are a lot of different ways to hide the ball from an administrative process standpoint. Does it not have some good effect to know that you are going to have to put it out there and have your peers commenting on it? Mr. Shapiro. Yes, sir. Absolutely. We should be as smart as we can be, and to the extent we have numbers, we ought to look at them for what they are worth. Chairman Thompson. Going back to yesterday, by the way, how do you feel about cost-benefit analysis in general? Yesterday, we were talking about cost-benefit analysis for major rules, risk assessment, and so forth. I would be interested in how you and Dr. Bass feel about that in particular. Mr. Shapiro. Agencies do it. They are required by OMB to do it and I think that is very salutary. I would point out two things, however. First, as I just mentioned, agencies have to deal with the data they can get within the time frames they have to operate. As a result, various agencies have adopted slightly different ways of doing cost-benefit analysis because they are forced to these different accommodations given their differences in situation and availability of data. I think they do the best they can. We can always try to do better. When you go to aggregate those, as this bill does, you have a bit of adding up apples and oranges because we do not have a common methodology, and were OMB to impose one, we run up against the constraint I just mentioned, which is the adaptation. Chairman Thompson. Well, that is what they always say. Our situation is different. We need to apply our own methodology and all that. GAO does an analysis of it and finds that very, very often, the Executive Order is ignored, in total or in part. But my point is, whether or not you agree with the legislation or not we were discussing yesterday, the idea that they ought to be doing a cost-benefit analysis, consistent with the Executive Order, anyway, is a good idea. Mr. Shapiro. Yes, sir. Chairman Thompson. Do you agree with that, Dr. Bass? Mr. Bass. If your bill S. 746 only did that, we would not have been having the heavy debate that we were having. I think that there is not any question that agencies are currently required to do cost-benefit analysis for major rules. They should be doing it for those. Chairman Thompson. Do you know, do you have an opinion or do you know whether or not they are doing a very good job in carrying out the Executive Order? Mr. Bass. Well, no, I do not have a qualitative sense of how that is done. I know that GAO did report that certain major rules were not reviewed by OMB. There certainly should be greater oversight on the part of Congress to ensure compliance with that. The point I was going to make is not just solely whether cost-benefit is done, which is an economic tool. Regulatory decisions also should be made in the context of a number of other factors that an agency should be considering that may not be economic in nature. Chairman Thompson. What, that would not be either quantifiable or non-quantifiable, what in addition to that should they be considering? Mr. Bass. Oh, I believe that when we start to discuss issues around the benefits that are derived from environmental protection or from worker protection---- Chairman Thompson. That is non-quantifiable. Mr. Bass. I am sorry. What? Chairman Thompson. That is non-quantifiable. I mean, that is covered. Mr. Bass. I understand that. The question that I was referring to, though, is how would you do an economic cost- benefit analysis and then derive in S. 59 a discussion about net benefits. That would be hard to do on the non-quantifiable side. You would ultimately have to monetize that, which is what OMB actually did, in order to come up with it. Chairman Thompson. S. 59 says to the extent feasible. Mr. Bass. Yes. Chairman Thompson. Dr. Litan. Mr. Litan. Yes. I want to tick off several responses. First, on the cost of doing all of this, Gary said, well, 4,000 rules times $570,000 is $2 billion. In fact, we are probably only talking about major rules here and thus 30 or 40 major rules a year, so we are down to numbers in the $15 to $20 million range. This is not a huge amount of money. The second thing is both Gary Bass and Sid Shapiro talk about the fact that there is all this historical data. We do not know a lot of this. Well, that is why in our testimony we suggest that your bill require OMB to begin the process of going back and looking at some of these rules and redoing some of them itself. And you know what? Gary Bass and Sid Shapiro may be right. Some of those rules may be a lot cheaper than we thought, but you would like to know that. I also will bet you some of them are more expensive than we thought. Chairman Thompson. This all presupposes you are trying to knock something down. Mr. Litan. Exactly. Chairman Thompson. I mean, the fact of the matter is, all these things that we all are for, the benefits greatly outweigh the costs. So it really helps your cause, I would say, and protective legislation to be doing this, whether or not it is meat inspection or children smoking or whatever. My problem is that you start trying to add up the costs and benefits. You say, well, you cannot do that because you are not factoring in the non-quantifiable. You say, OK, we will factor that in. They say, well, when you do that, it makes the numbers meaningless, so you cannot do that, either. That is kind of the objection we get. So the idea, I suppose, is to allow the regulator in his sole discretion to make those determinations and not have to explain why he is doing what he is doing. Mr. Litan. Well, we have an example in our testimony of how--it was a hypothetical--where you have got, let us say, $500 million of cost on a water pollution bill, $400 million of benefits, and then you have the non-quantifiable factor that this rule may just give you clean lakes and clean rivers, which you cannot put a number on, but you go ahead and adopt the rule anyhow. What the analysis has done is that it allows you to at least implicitly value those non-quantifiables. You know they are at least worth at least $100 million in this example. So I think the virtue of at least quantifying what you can is that it allows you to put a price tag on what you cannot quantify. Two more points. Despite all this debate, I do not think we are all that far apart. The bottom line of Mr. Shapiro's testimony, orally as opposed to written, because I think he was more strenuous in his written testimony than his oral testimony, is be careful and go slower. Mr. Shapiro. I am intimidated by the Chairman. Mr. Litan. OK. Well, something works. Oversight works. Chairman Thompson. I am just sitting here thinking about how many hearings we would have to have to have a hearing for every rule. Mr. Litan. But in any event, my point is that Mr. Shapiro is basically saying, look, be careful, be aware, keep your eyes open before going into this. But the reality is that does not seem to me an overwhelming objection to doing what you are proposing. Gary comes along with some very specific word changes, some of which I happen to agree with. I think I heard him say, take out ``indirect,'' add some words like ``to the extent feasible.'' Where the rubber hits the road is on monetization, OK? Now, the President's Executive Order or OMB's guidance already says that agencies should monetize to the extent feasible. Your bill does not even do that. In my testimony, I suggest you should add such language. You should copy the words that are in the Executive Order, and as long as the words ``to the extent feasible'' are in there, it seems to me that should take care of Gary's objection. Now, I may be pushing him too far---- Chairman Thompson. A lot of people prefer to have the Executive Order down to use when it is convenient but not have it carried out and not have it be made law where it really means anything. Mr. Litan. No comment. Chairman Thompson. Let us move, if we may, briefly to the CORA. Gentlemen, Professor Shapiro and Dr. Bass, do you have problems with the concept that the Congress should become more involved in the regulatory process in this way? Obviously, there is a question as to when, if it gets involved, or when it should, to what extent that it should. Questions have been raised as to Congress meddling in the administration's business, as it were. But, of course, it is all based on the laws that Congress passes and we often find that the regulations are contrary to what our intent really was and we passed legislation that would give us another crack at it. There are only so many hearing days in a year. What do you think the concept, regardless of how you would approach it, the concept of Congress becoming more involved in the process in general? Is there any approach that you would support in that respect that we are not doing now? Mr. Bass. The answer would be yes. I do think, and I am mindful of the fact that you just said you have only so many days for hearings, but I do believe the oversight process is a critical one in order to educate you in the notion of developing any needed legislation. I also think that the appropriate way to handle the regulatory maze, if you will, are through the appropriate oversight committees. That is, it is very difficult to deal with issues comprehensively. When there is a problem with the Clean Air Act, you should deal with the Clean Air Act, and on down the line. It is more effective and will be more efficient in the long run. I also have a bit of a problem with Bob's idea that a letter from Congress, or CORA as its substitute, to an agency becomes, as you say, the 800-pound gorilla. I think the Administrative Procedure Act was established to ensure some kind of even ground for everyone in the public to participate in the rulemaking. If just by perception Congress' letter has greater weight, you have then tilted the whole regulatory playing field enormously. By the same token, when you just asked the question about accountability, ultimately, it is not only Congress that deals with it, it is going to be the courts, and the courts are going to be guided by the Administrative Procedure Act. So there are many factors that have to be woven into all of this. Chairman Thompson. But for Congress to weigh in, of course, it would be helpful if they had a little more expertise than most of us have on some of these arcane rules, and for the courts to weigh in, I mean, the horse is way out of the barn then and it is very expensive. The question is whether or not it would not be better to have a little more input earlier on so that we might could avoid some of these problems. We know that in many areas, we are coming up with rules that are not only putting resources in the wrong places but are actually harmful in some respects. Mr. Bass. Mr. Chairman, I assume that in order to achieve that, you hire staff that are experts. Certainly, Paul Noe knows the substance of the regulatory matters inside and out, and if he was on the Environment Committee, the staff would know the details of the particular legislation that they have oversight on. Chairman Thompson. Well, he is a man of many talents, but he is not a scientist and an expert in every regulatory area that could come up. Mr. Bass. Fair enough. I do not believe that CORA would have that same kind of expertise that you are looking for, and, in fact, if you take Bob's numbers that he just did with my figure of the CBO cost estimate, you are talking about an institution that, at its minimum, would be $32 million a year, which is more than what CBO is. We are not talking about something that is trivial here. Chairman Thompson. Dr. Weidenbaum, you said you thought either a new agency or as a part of CBO. Dr. Litan, do you have any thoughts about that? Again, part of me says the fewer new entities, the better. Mr. Weidenbaum. My preference is to---- Chairman Thompson. But on the other hand, CBO, I am not sure that what they are doing now would lend itself that readily to what we would be asking them to do here. Mr. Weidenbaum. The reason I suggest putting it under CBO-- but that is not essential, it could be independent---- Chairman Thompson. That is something we have talked about. Mr. Weidenbaum. It uses a lot of the same type of talent. I am talking about micro-economists, particularly, people with a statistical bent. There would be a lot of mutual support from the existing portions of CBO for this new portion. Also, you would save an awful lot of overhead. So as a practical matter, you put this new organization under CBO, I think you will find it getting off to a start earlier than if it had to go through the whole motions of setting up a new separate agency in the Legislative Branch. Chairman Thompson. Dr. Litan, before I get off the subject totally, do you have any thoughts on the agencies' compliance with the Executive Order? Mr. Litan. Only what I read, which is that it is imperfect. Chairman Thompson. OK. Dr. Shapiro, do you have on this latter point we have been discussing with regard to CORA, first the bigger question, and then a preference as to whether, if you thought it ought to be done or not, if it was going to be done, how and where the responsibility might lie? Mr. Shapiro. Thank you. I would refer to the early years of OMB and OIRA in the Reagan Administration. That was the first administration to take regulatory oversight seriously. It was very controversial. It was very controversial for a lot of reasons, but one of them was the feeling of outsiders that there was a lot of dealing behind the scenes, that people were getting special access to the regulatory process through the back door of OIRA. Subsequently, OIRA published procedural regulations which made them accountable for their process and who comes in and who goes out. The Clinton Administration strengthened those procedures, so they are even more on the record. I mention that because we were talking earlier in the hearing, was talking earlier about when should Congress intervene, and I think the cause of the consternation over whether it should be before a notice of proposed rulemaking is this very concern. If it is after the notice of proposed rulemaking, there is more accountability, it is more open, everybody is dealing at the agency. At that point, and typically that is when Congress now intervenes to the extent, individual Senators or Congressmen want to have a say, and that seems to me maybe an important dividing line for that very reason. The other point I would make, if I may, is this: Some of the dissatisfaction about agencies' compliance with the Executive Order, I think, deals not with the compliance with the Executive Order but with the underlying situation that when agencies go to regulate, their statutory missions are often tied to different factors than a cost-benefit test. Now, it is another whole debate whether we should have regulation as a substantive matter, as the mandate tied to a cost-benefit test---- Chairman Thompson. Well, they are not very bashful about saying this does not apply to us so we are not going to do it and then going on. Mr. Shapiro. I understand. Chairman Thompson. It is not a real constraint. I do not think they are laboring under it in many cases. Mr. Shapiro. No, but the extent to which they get involved with this data is affected by their mission and their mission points them in a somewhat different direction. So they come out with results that some of the critics do not like. They point to that as a failure of the cost-benefit process, but, in fact, the agency is responding to its statutory mission and I do not see that as a criticism of the way they do cost-benefit analysis. I see that as---- Chairman Thompson. Part of its statutory mission is to follow the President's Executive Orders, I would think, maybe not statutory, but there. Yes, sir? Mr. Litan. Yes. On CORA, two points. One is, how much would it cost? Not a $570,000 analysis again? We are talking about, in my framework, a staff that looks like OIRA, like 15 or 20 people, so cost that out at $1.5 or $2 million. Add some peer review panels and so forth. If you are telling CORA not to do its own regulatory analysis but, in effect, do the same kind of review that OMB is doing, it is not $570,000 a rule. It is maybe several million dollars. It is not $32 million. Second, where should it be? I say in my testimony my preference would be to have it be its own agency. I fear that it could sort of get lost and have its influence muted if it were part of CBO. I also suggest that you ought to talk to Dr. Crippen about this, but I think there is some reservation within CBO about putting it there and worry that this would compromise its relationships with the agencies. So that is something that you will have to assess, I think, in private conversation. Chairman Thompson. Mr. Dyer, what do you come away with from all this? How big a part of this regulatory situation is a part of your life and doing business? Mr. Dyer. I can tell you, with my experience today, I will never order a BLT without wondering what it stands for. I have heard enough letters, all right. [Laughter.] I think that most business people complain and gripe when we are filling out some form from the Commerce Department or the Labor Department. It is an aggravation. My business has grown. I will be frank. I do not do much of that myself anymore, but I pay people that do and it would be a little better for my bottom line if I did not have to. Many of the regulations do not appear to make sense down at my end, and that may be because I am not very bright, I admit that, but we rely on trade associations and academic institutions to do the analysis. I think that what you are proposing would increase our confidence that what we do when we could be out playing with our kids is worthwhile. I do not believe business begrudges doing what it needs to do to make our country better. We just want to make sure that we are not spinning our wheels. Chairman Thompson. You hear a lot of stories about one- size-fits-all rules that just simply have no relevance to an individual. They look at it and they get cynical and pessimistic and anti-government and anti-regulation and all that when we all know there are some things, as you say, you have kids that swim and canoe in that same water that we are trying to protect. Mr. Weidenbaum. Mr. Chairman, could I pick up a theme that Professor Shapiro raised? Chairman Thompson. Yes, sir. Mr. Weidenbaum. That is, the burden of all this regulatory review. I think he has got a good point there, which is why I think when the Congress finishes writing a bill like S. 59, you ought to economize on all the regulatory review mandates that you are imposing. Chairman Thompson. Do a little cost-benefit analysis, in other words? Mr. Weidenbaum. Will the benefit-cost analysis pass the benefit-cost test? But there is a little hook to my point here. What is sauce for the goose is sauce for the gander. If we are all so enthusiastic about the agencies doing good benefit-cost analysis, I would think that the Congress when it is first writing a Clean Air Act or a Clean Water Act could use some of that good stuff, as well, perhaps---- Chairman Thompson. Now you started meddling again. [Laughter.] Mr. Weidenbaum. Yes, sir. Guilty. But that would deal with the problem that a lot of these agencies are catching holy heck for things that they have no discretion over. You have tied their hands. Chairman Thompson. You are absolutely right. The classic case is the IRS. We pass these God-awful laws, overreaching, broad, and then beat them up for enforcing it. There is no question about that. So on that happy note, I want to thank you gentlemen. This has been an extended version here today, but it has been extremely helpful to us. I hope that we can stay in touch with each of you as we go along and come up with a good result. So thank you very much and we will stand in recess. [Whereupon, at 1:05 p.m., the Committee was adjourned.] A P P E N D I X ---------- OPENING STATEMENT BY SENATOR GEORGE V. VOINOVICH Mr. Chairman, I commend you again for holding these important hearings on regulatory reform both yesterday and today. Over the years, as a State legislator, a mayor and a governor I have become increasingly concerned about the unnecessary and burdensome costs that are imposed on our citizens and State local governments through Federal laws and regulations. Since 1994, I have worked closely with Members of this Committee-- with you in particular Mr. Chairman--and the State-local government coalition to enact common-sense legislation that would result in greater protection of public health and the environment while alleviating cost burdens on State and local governments and the private sector. As a nation, we spend vast sums on regulation. A report commissioned by the U.S. Small Business Administration estimates that regulations cost the economy about $700 billion a year--more than $7,000 for the average American household. Unfortunately, these cost burdens have not always resulted in maximum health or environmental protection. I think it is imperative that we take a close look at whether regulations are meeting their intended goals and at what costs. Yesterday we held a hearing on the Regulatory Improvement Act, which will help to ensure that new regulations are based on sound science and cost-benefit analysis. I believe the two bills we will discuss today help to round out the regulatory reform process. One tracks the costs and benefits of existing regulations, while the other provides Congress with an independent analysis of the costs and benefits for major regulations. Mr. Chairman, I am pleased to be a cosponsor of your Regulatory Right-to-Know Act, S. 59. this bill would require the Office of Management and Budget to submit an annual report to Congress on the total costs and benefits of Federal regulations--particularly those imposed on State and local governments. It also requires OMB to submit any recommendations for reforming wasteful or outdated regulations. However, it does not mandate that any regulation or program be eliminated because the benefits do not outweigh the costs. I commend the bipartisan work that you and Senator Breaux have done on this bill. This bill also has the bipartisan support of the Nation's governors, mayors, State legislation and county commissioners. We will also discuss a bill that was introduced last year that would establish the Congressional Office of Regulatory Analysis. The purpose of this bill would be to provide Congress with independent analyses of new rules to help determine whether a regulation should be challenged under the Congressional Review Act. I strongly believe that all three bills from our 2 days of hearings will make the Federal Government more accountable to the people it serves. And they will help to ensure that costs, benefits, and sound science have been studied prior to finalizing rules. Thank you, Mr. Chairman. I look forward to today's testimony. 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